   Chapter 5, Problem 32P Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
ISBN: 9781337395250

Solutions

Chapter
Section Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
ISBN: 9781337395250
Textbook Problem

REACHING A FINANCIAL GOAL Six years from today you need $10,000. You plan to deposit$1,500 annually, with the first payment to be made a year from today, in an account that pays a 5% effective annual rate. Your last deposit, which will occur at the end of Year 6, will be for less than $1,500 if less is needed to reach$10,000. How large will your last payment be?

Summary Introduction

To calculate: Value of deposit to reach the financial goal of $10,000 in six years at 5% annual effective rate with the 6th year deposit to be less than$1500.

Present Value of Cash Flow:

It is also called as the discounted value; it defines the amount of money that is invested at a given rate of interest will increase to the amount of future cash flow at that particular time in future.

Explanation

Calculation is done in spread sheet

Table (1)

The value of investment up to five years is $8,703 Calculation of the amount to be deposited in the sixth year Given, Amount required$10,000

Future Value \$8,703

Formula to calculate amount require to deposit in sixth year is,

Sixthyeardeposit=Amountrequiredfuture

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